Gainful Employment: A Detriment to Competition

Today the Obama Administration unveiled its long-anticipated and highly controversial final gainful employment (GE) regulation that ties program eligibility for federal student aid to new metrics that are based on student loan repayment rates.

Under the new GE rule, a vocational program can qualify as leading to gainful employment and remain eligible for federal aid if one of three metrics is met:

1. At least 35% of former students are repaying their loans;
2. The estimated annual loan payment of a typical graduate does not exceed 30% of discretionary income;
3. The estimated annual loan payment of a typical graduate does not exceed 12% of total earnings.

The rule requires that a program fail to meet one of the three metric three times in a four year period before becoming ineligible for federal student aid, with 2015 being the first year that a program can lose eligibility.

Education Secretary Arne Duncan defended the metrics as a “perfectly reasonable bar…that every for-profit program should be able to reach. We’re also giving poor performing for-profit programs every chance to improve. But if you get three strikes in four years, you’re out.”

Although the regulations are less onerous than earlier proposals and financial markets appear to be responding favorably , GE nonetheless represents a misguided agenda to further tilt the playing field in favor of preferred non-profit institutions by imposing rules that are not uniformly applicable to all postsecondary providers.

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Minding The Campus 

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